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The Short Answer

Is My Fund a Closet Indexer?

R-squared can measure an investment's correlation with an index, but there are limits.

Mentioned: , , , , ,

Question: I've long held Selected American (SLADX) as a core holding, and I've noticed that its R-squared has been steadily rising and is now over 97. Does that mean the fund is a closet indexer?

Answer: As Esther Pak explored in a series on fund performance statistics this past spring, the "Ratings and Risk" tab for mutual funds is a treasure trove of useful risk/reward statistics for mutual funds. One of these statistics is R-squared, which can be helpful on a couple of fronts.

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Christine Benz has a position in the following securities mentioned above: SLADX. Find out about Morningstar’s editorial policies.